Health IT offers large opportunity, says Lux Capital’s Foster

Arlene Weintraub

On April 26, New York-based venture capital firm Lux Capital added two new partners: former CIA director James Woolsey, who will focus on energy investments; and Richard Foster, a former McKinsey & Co. partner who will help Lux identify new business opportunities in life sciences and healthcare IT.

Throughout his career, Foster has been on the frontlines of innovation in emerging industries. At McKinsey, he co-founded a high-tech practice in the 1970s, a chemicals group and healthcare unit in the 1980s, and a private-equity practice in the 1990s.

Foster has also written two books on innovation, Creative Destruction:Why Companies That Are Built to Last Underperform the Market—And How to Successfully Transform Them (Broadway Business 2001), and Innovation: The Attacker’s Advantage (Summit Books 1986). I asked him about innovation, life sciences, and health IT, and how he plans to deploy his experience to help Lux identify the right investment opportunities.

Xconomy: Healthcare IT will be a new direction for Lux. Why do you feel this is a good opportunity?

Richard Foster: We’re not going to be able to run a healthcare system unless we actually have a system, and that will require a lot of IT. Many older doctors don’t use computers—they don’t want to use computers. I don’t know of any medical school that has technology as part of its curriculum. But the younger docs are all very tech savvy, so I believe it’s all going to change.

Imagine if the airlines had no IT. That’s where healthcare is now. It’s a very large opportunity with hundreds of parts to it.

X: How important was the healthcare reform legislation and other government stimulus actions in terms of increasing entrepreneurial interest in health IT?

RF: It has been tremendously important. The national coordinator for health IT is giving doctors incentives for purchasing new systems. That will result in incentives for companies to provide services and products. But this will be a long road. Also the Department of Health & Human Services is releasing tremendous amounts of data.

On June 9, HHS will be holding a national meeting on health data initiatives. There will be dozens of younger companies there talking about their plans to use this resource.

X: One of your mandates, according to Lux, is to seek out new business models for life sciences. Explain.

RF: Our system of drug development, in the eyes of many, is broken. Researchers at academic medical centers are focusing on discovering what’s going wrong in the diseased body. Drug companies are trying to figure out how to fix it. But the interface between the two isn’t working. And no one is answering the question of who is going to bear the cost of further development. This system cannot continue as it is currently structured.

You’ll see a lot of private funds looking at new ways to do drug development. We’ll be looking at those new models, too.

X: How will your challenge differ from that of Lux’s other new partner, James Woolsey?

RF: The capital requirements for energy and climate are so much greater than they are for healthcare, which makes them very different issues. But we have to solve energy and climate problems, and we will. It’s a wonderful part of the equation for Lux, and I’m happy to be working with James Woolsey.

X: Having written two books about innovation, what’s your top advice for new entrepreneurs?

RF: They need to avoid what I call “cultural lock-in”—the tendency to build a business model and then not be able to see any other model from then on. You have to think of the next wave of entrepreneurs that are behind you, and you have to know exactly how you’re going to beat them.

I once met Bob Swanson, the original CEO of Genentech. I told him he was the perfect example of an attacker, but he said he didn’t think of himself that way. He said, “I’m worried about these guys who are behind me.” That’s the attitude entrepreneurs need to have—the Swanson attitude.

Remember, the world doesn’t stop just because you started a company.

Xconomy is dedicated to providing timely, insightful, close-to-the-scene information about the local personalities, companies, and technological trends that best exemplify today’s high-tech economy.

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